Invesco Property Income Trust Limited Annual Financial Report Announcement for the year ended 31 March 2014 CHAIRMAN'S STATEMENT As shareholders will no doubt be aware there have been some very significant developments for the Company since the publication of the last annual report, principally taking place after the end of the financial year, which have led to a delay in the publication of this year's report. Future of the Company We announced in July the outcome of discussions with the Group's lending bank relating to the borrowing facility which was due for repayment on 28 September 2014. At that time the listing of the Company's shares in the UK and the Channel Islands was suspended. Since then we have agreed terms for an extension of the borrowing facility to 31 December 2014, the accelerated marketing and proposed sale of all the Group's remaining property assets and arrangements for the subsequent solvent winding up of the Company and its subsidiaries. It is expected that the proceeds of asset sales will not be sufficient to meet the outstanding loans in full and shareholders cannot expect any return at the end of the process. Performance The UK portfolio was stable in the year to 31 March 2014, even showing some very modest improvements, but the European valuations continued to fall, exacerbated by asset-specific factors. The UK portfolio's like-for-like capital values rose 4.9% and the European portfolio fell 12.4% in euros on the same basis. Adjusted shareholders' funds at the year end were £-29.8 million or -19.5p per share, down from £-17.6 million (-11.5p) a year earlier. Activity We were able to complete a number of disposals this year, both in the UK and in Europe. The investment manager's report sets out further details. Since the year end a further three properties have been sold and we have exchanged on a fourth in individual transactions and the remaining assets are currently being marketed for sale as a portfolio. Detail on leasing activity is provided in the investment manager's report. Financing The value of the Group's bank borrowings at 31 March 2014 was £150.8 million (2013: £191.9 million), comprising £51.9 million drawn in sterling and €119.6 million drawn in euros. The loan to value (LTV) ratio at that date was 126% (2013: 104%), in excess of the maximum of 100% permitted under the Group's borrowing facility at that date. Since the year end £9.5 million and €4.9 million of borrowings have been repaid from the proceeds of sales, and a liability of £7.761 million owed on closing out currency swaps has been transferred, with the agreement of the lending bank, to the loan balance. £2.3 million was also owed at the year end under a borrowing facility with Invesco Ltd. Annual accounts - going concern As has been the case in recent years there has been uncertainty as to whether the Group's annual accounts could be prepared on a `going concern' basis. The Group has not been in compliance with the maximum permitted LTV ratio of 100% since 31 December 2013 and accordingly the lending bank had the right to demand repayment of all amounts owed to it which, if exercised, would have meant that the Group could no longer be treated as a going concern. As noted earlier, we have agreed an extension to the loan facility with our principal lenders, including arrangements for the sale of the remaining property assets and a solvent winding up of the Group. Given that these proposals would effectively terminate the business, the Directors do not consider it appropriate to treat the Group as a going concern and financial statements have not been prepared on such a basis. Outlook All the Group's remaining property assets are being actively marketed for sale as a portfolio. Further weakness in European markets since the year end, asset specific issues and factors relating to the sales process mean that the year end valuations may not be realisable. The outcome of the process should be known in the next few weeks, and a further announcement will be made in due course. It is the intention of the Directors to wind up the group companies following completion of all assets sales but we do not expect there to be any return for shareholders as all net sales proceeds will be used to pay down bank debt. Richard Barnes Chairman 27 November 2014 . STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2014 INVESTMENT MANAGER'S REPORT The Market While we have witnessed a period of relative stabilisation across the Eurozone economies, the associated increase in capital allocations to real estate remain primarily focused on stabilised 'Core' assets. This Company's portfolio comprises assets that do not fit this definition, and are therefore still being discounted by investors. While there is variation across countries, the general trend shows some improvement in sentiment with more debt availability and an appetite for more leasing risk to benefit from hoped-for growth in rents as businesses look to expand again. In the UK this trend has led to a stabilisation in the valuations of this Company's assets, whereas in Europe values are unfortunately still falling. In selected locations we have recently started to see investment demand spreading out into more secondary markets, driven initially by local investor groups looking to re-invest in higher yielding assets following sales in the core markets. However this optimism needs to be balanced against the reality; in these second tier/secondary markets the occupier demand is proving slow to materialise; vacancy rates remain high, limiting the potential for rental growth in the near term. Some transaction activity is taking place, helping to improve liquidity, but without the visible return of key fundamental drivers of performance (occupier demand and rental growth) we do not anticipate this interest driving significantly higher prices across the secondary sector. The overall 2.6% fall in valuations of the held portfolio over the last quarter, or 8.1% fall over the last year, is predominantly due to a fall in the held continental European portfolio, most of which was recognised in the last two quarters. This is due to asset specific reasons and continued occupier market weakness in those markets. In particular this reflects the increased vacancy across the portfolio and recognition within the valuations of greater capital investment required. Asset Management The asset management strategy is focussed on achieving the most secure contracted income possible over the short to medium term, in order to enhance the liquidity and value of the asset. The finite cash resources for capital investment means speculative refurbishment is not possible however this will be undertaken where necessary and value improvement can be identified and we have invested approximately £0.8 million into the assets over the year. The weighted lease term across the portfolio was 3.1 years at the year-end, but below 2 years in the Euro-denominated portfolio. With the expiry of the largest lease in the portfolio at the logistics asset in St Michel, Paris during January 2014 the vacancy rate has increased to 21.6%, from 15.4% last year. At the start of the financial year in April 2013, £4 million of the £17 million rent passing (24% of the portfolio) was subject to lease expiries or break options within one year. With the St Michel lease expiry over half of this income expired. However, £0.8 million of this income has either renewed or been replaced while a further £0.9 million was holding over pending lease negotiations. In addition to replacing or renewing some of this rent, we have agreed additional new leases on vacant areas totalling £0.2 million of rent, and we have removed break options relating to periods beyond 31 March 2014 for a further £1.2 million of rent, as reflected in the stable weighted lease term overall. In the coming year £2.3 million of the current income (20% of the total) is due to expire or is subject to break options. This is the focus of attention in the short term. Disposals A total of eight properties were sold during the year, realising net proceeds of £47.6 million. At the year-end £38.9 million of this had been applied to debt reduction with a further £7.5 million repaid immediately after the year end and a final amount of £1.2 million repaid in June. The sales included five warehouse properties in the UK, plus the vacant office at Gerrards Cross, with the overall balance of sales in the UK 5.0% ahead of valuation. In Europe we sold the multi-let office assets at Le Diapason in Paris and Rozendal in Belgium. Both assets had recently achieved some leasing success and reached full occupancy but subject to relatively short lease terms creating a short term peak in value. Agreed sales prices on these two assets in aggregate were 8.7% below the prevailing valuation however, mainly due to the result at Le Diapason. All sales have been openly and widely marketed. Subsequent to the year-end we have sold a further three assets, two in the UK and one in France, to separate purchasers but representing a combined price of £13.9 million, 1.0% ahead of the year end valuation. The UK assets were sold following new or extended leases, while the asset in France, Combs la Ville, was a vacant warehouse with significant ongoing costs to the Company. We have also exchanged contracts on the sale of the Le Verdun asset in France following a renewal of the lease, due to complete in December 2014, and the remaining assets are being openly marketed for sale as a single portfolio of 12 properties; seven in the UK and five in Continental Europe. Outlook While there needs to be a more sustained recovery in the fundamentals for prices to start to recover in the secondary sector, particularly outside the UK, the increase in capital allocations to real estate is providing more liquidity. An increased appetite for risk, and yield, is forcing investors to consider portfolios. This presents an opportunity to conduct a realisation of the portfolio albeit that prevailing valuations may not be realisable. Rory Morrison Invesco Asset Management Limited 27 November 2014 . BUSINESS REVIEW Invesco Property Income Trust Limited is a Jersey domiciled property investment company and its investment objective is set out below. The strategy the Board follows to achieve that objective is to set investment policy and limits, and to monitor how they are applied. These are also set out below and have been approved by shareholders. The business model the Company has adopted to achieve its objective has been to contract investment management and administration to appropriate external service providers, who are subject to oversight by the Board. The Company's main supplier of services is Invesco Asset Management Limited (the `Investment Manager') which provides investment portfolio and management services. Further details of the external service providers are contained in the Report of the Directors on page 21. Investment Objective and Policy The Company's Investment Objective and Policy, set out below, have been designed to set out clearly the investment objective of the Company and provide shareholders with information on the policies that the Company follows in order to try to achieve its objective. These relate to asset allocation, risk diversification and gearing, including maximum exposures. The objective and policy were revised in 2011 to reflect a realisation programme, rather than an indefinite life as was the case previously, and further revised (and approved by shareholders) in 2013. Investment Objective The Company holds a diversified portfolio of European commercial properties. The investment objective of the Company has been to repay its bank borrowings and other liabilities and, if it is able to meet these obligations, to provide a return for shareholders. The Directors no longer expect to be able to meet the Group's liabilities in full and so do not expect there to be any surplus for shareholders. Investment Policy The Company has pursued its investment objective by seeking to optimise value from the Group's current portfolio, comprising a diversified portfolio of investment properties located in the UK and continental Europe. It is expected that the principal source of funds from which to repay borrowings and meet other liabilities will be the net proceeds from disposals of assets in the Group's property portfolio. It is likely that all of the property investments will need to be sold to meet the Company's obligations to its lenders and other creditors and that not all such obligations will be met in full. The Directors do not expect that: • any new investments will be made (other than cash or near cash equivalent securities); • any net new borrowings will be drawn down; or • any dividends will be paid. Performance Key Performance Indicators The Board reviews performance by reference to a number of Key Performance Indicators which include the following: • Asset Performance • Income generation • Ongoing Charges Ratio Asset Performance In the circumstances faced by the Company the key metric for asset performance has been the LTV ratio. LTV has been greater than 100% at each quarter end during the period. Income Generation The Board has also monitored closely the Group's cash revenues against the interest cover covenants in the loan facility. The Group has remained cash flow positive and compliant with the covenants. Ongoing Charges Ratio The expenses of the Company are reviewed by the Board at every Board meeting. It is the aim of the Board to minimise charges. The ongoing charges ratio provides a guide to the effect on performance of the costs of the Company. The ratio of charges to gross assets for the year was 1.6% (2013: 1.5%). The increase in the ratio masks a small reduction in expenses payable and is due to the fall in gross assets as assets were sold in the year. Financial Position Assets and Liabilities At the year end, the Group had a total net liabilities position of £37.7 million (2013: total net liabilities of £35.0 million) equal to -24.6p per share (2013: -22.9p). The assets comprised a portfolio of European property in the office and industrial sectors and the liabilities included bank borrowings totalling £150.8 million (2013: £191.3 million). At the year end, liabilities included an amount of £7.98 million representing the mark to market value of currency swaps. With the agreement of the lending bank the swaps were closed out on 17 April 2014, crystallising a liability of £ 7.76 million. This was settled from a new drawdown on the Group's borrowing facility. Share Valuations and Net Asset Value (`NAV') On 31 March 2014, the mid-market share price, the NAV and the adjusted NAV (see glossary on page 65) per ordinary share were 0.25p, -24.6p and -19.5p (2013: 0.6p, -22.9p and -11.5p) respectively. The NAVs per ordinary share are calculated on 153 million shares in issue at the year end and net liabilities attributable to ordinary shareholders of £37,671,000 (2013: £34,988,000). The listing of the Company's shares was suspended on 28 July 2014 and there is no longer any market price. Revenue and Dividends The financial results for the year are shown in the Consolidated Statement of Comprehensive Income on page 32. No dividends have been paid during the year under review (2013: £nil), and no further dividends are expected to be paid. Borrowing The Group's borrowing facility in place at the year end fell due for repayment on 28 September 2014. The Directors did not expect to be able to meet the repayment obligation and, with their advisers, had been engaged in discussions with the lending banks for some time over how to address the position. The conclusion to these discussions, announced in July 2014 and with the support and consent of the lending bank, was for the Company's remaining properties to be marketed in a structured sales process, aiming to achieve a sale of all assets before the end of 2014. To facilitate this, the repayment date of the facility has now been extended to 31 December 2014. Other terms of the facility remain largely unaltered, including covenants. The Group is in breach of the Loan to Value covenant, but in the circumstances this will not act to inhibit implementation of the sales process. It is not expected that the net sales proceeds will be sufficient to meet all amounts due to lenders and the lending banks have agreed that amounts still outstanding following the process will be treated as no longer owing, allowing the group companies to be wound up solvently. The Group also has borrowings due to Invesco Limited (`Invesco'), the parent company of the Investment Manager. The Invesco facility is subordinated to the bank facility and no amounts are permitted to be paid to Invesco until the lending bank has been paid in full. Invesco has consented to the sales process and will also waive any amounts due to it that cannot be paid at completion of the sales process. Hedging Hedging policy is under the control of the Board. Cashflow hedging was used to limit the extent of earnings exposure to fluctuations in interest rates. The terms of the Group's borrowing facility require the Group generally to hedge its interest rate exposure but during the year the Lender consented to waivers of this requirement in view of the disposal and debt repayment programme under way. The Group's interest rate exposure remains partially hedged through the use of a basket of interest rate swaps. As at 31 March 2014, interest on 97% of sterling borrowings and 33% of euro borrowings was payable at fixed rates of interest. The rate payable amounted to a weighted average of 2.9% (2013: 4.5%) per annum, including the margin. The euro interest rate hedges were cancelled in April 2014 with the currency swaps as described below and have not been replaced. The remaining sterling interest rate hedges expired on 28 September 2014 and have not been replaced. The Group hedged against fluctuations in the euro for the net investment in European assets, by hedging against future movements in the euro/sterling exchange rate for the amount of the investment in euro denominated assets less borrowings in euros. As a result of falling asset values in Europe the Group's exposure to the Euro is overhedged. At the year end these particular hedges were ineffective and they were cancelled at a cost of £7.8 million in April 2014. The currency exposure is now unhedged. Current and Future Developments As described in the Chairman's statement the Board and the Investment Manager are engaged in a process to dispose of all the remaining property assets. The objective is to have completed the sale before the end of 2014, following which the Directors expect to begin the process of winding up the group companies. In the event that the sales process is not successful alternative outcomes will be discussed with the lending banks but in no circumstances is it expected that shareholders will receive any return. Principal Risks and Uncertainties The principal risk factors relating to the Company can be divided into various areas: Investment Policy The Board has established guidelines to ensure that the Investment Policy approved by shareholders is pursued by the Investment Manager. There is no guarantee that the Investment Policy adopted by the Company will provide the returns sought by the Company. There can be no guarantee, therefore, that the Company will achieve its investment objective and, as set out under Current and Future Developments above it currently appears unlikely that the Company will be able to. Ordinary Shares and Dividends The market value of an ordinary share is affected by its NAV, but also reflects supply and demand for those ordinary shares, along with wider economic and political factors and changes in the law, including tax law. As such, the market value of an ordinary share can fluctuate and may not always reflect its underlying NAV. The Company's NAV is negative. It is not likely that sufficient appreciation in the value of the Company's investments will occur to allow investors to get back any of their investment. The listing of the Company's shares has been suspended and accordingly there is no market for the shares and no quoted price. Dividends have been suspended and no further dividends are expected to be paid. Borrowings The Company has, since its inception, used borrowings to fund, in whole or in part, purchases of property assets. Use of borrowings in this way will tend to magnify the proportional effect on the NAV of movements up or down in the value of the investment portfolio. Borrowings were used in the hope of enhancing shareholders returns but the Company has experienced the opposite effect. Accumulated losses in portfolio values over recent years have exceeded the net asset value and have resulted in a deficit in shareholders funds. It is not expected that this deficit will be recovered. Borrowings also expose the Company to the risk of breach of covenants and terms in relevant financing agreements. The Company has been since December 2013, and at the date of this document remains, non-compliant with the Loan to Value covenant in its facility agreement. Interest and Currency Risks As the Company has significant borrowings, the Company is exposed to interest rate fluctuations as a significant proportion of borrowings are based on floating interest rates. In addition, the Company invests in Continental European property exposing the Company to movements in the euro exchange rate. Any increase in interest rates or adverse changes in the euro exchange rate will have a negative impact on the NAV of the ordinary shares. Market Movements and Portfolio Performance Rental income and the market value for properties are affected by general economic conditions and/or by the political and economic climate of the jurisdictions in which the Group's property assets are situated as well as in the rest of the world. The marketability and value of investment properties held by the Group will, therefore, depend on many factors some of which may be beyond the control of the Company such as changes in gross domestic products, employment trends, inflation, interest rates, natural disasters, the environment, changes in the supply and demand for real estate in an area and credit risks. There is therefore no assurance that there will be either a ready market for any investment properties or that investment properties will be sold at a profit or will yield positive cash flows. Both rental income and market value of properties are also affected by other factors specific to the real estate market, such as competition from other property owners, the perceptions of prospective tenants of the attractiveness, convenience and safety of properties, the inability to lease properties on favourable terms, the inability to collect rents, the periodic need to renovate, repair and let space and the costs thereof, the costs of maintenance and insurance, and increased operating costs. In addition, certain significant expenditure, including operating expenses, must be met by the owner even when the property is vacant. While the Board obviously cannot influence the aforementioned factors, it is vigilant in monitoring and taking steps to mitigate the effects of them should they occur. The performance of the Investment Manager is carefully monitored by the Board, and the continuation of the investment mandate is reviewed each year. It is expected that all future cash returns will be applied in reducing debt or paying operating and winding up costs. For a fuller discussion of the economic and market conditions facing the Company and the current and future performance of the portfolio of the Company, please see both the Chairman's Statement and Investment Manager's Report. Regulatory The Company is regulated by the Jersey Financial Services Commission under the Jersey Listed Fund Guide. It is subject to various laws and regulations by virtue of its status as a collective investment fund holding a permit under applicable Jersey law, as well as its listings on the UKLA's Official List and Channel Islands Stock Exchange, not withstanding that these listings have been suspended and its admission to trading on the London Stock Exchange. A serious breach of regulatory rules may lead to suspension from the above Stock Exchanges or a qualified Audit Report. Other control failures, either by the Manager or any other of the Company's service providers, may result in operational or reputational issues, erroneous disclosures, loss of assets through fraud, as well as breaches of regulations. Changes in taxation, legal, regulatory, corporate governance, environmental, landlord and tenant and planning laws, regulations and guidelines may occur in the European Union that may adversely affect the Company, its investments in the affected jurisdiction and/or position of shareholders, and may reduce returns for shareholders. Reliance on Third Party Service Providers The Company has no employees and the Directors have all been appointed on a non-executive basis. The Company is therefore reliant upon the performance of third party service providers for its executive function. In particular, the Investment Manager performs services which are integral to the operation of the Company. Failure by any service provider to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially detrimental impact on the operation of the Company and could affect the ability of the Company to successfully pursue its Investment Policy. The Investment Manager may be exposed to the risk that litigation, misconduct, operational failures, negative publicity and press speculation, whether or not it is valid, will harm its reputation. Any damage to the reputation of the Investment Manager could result in potential counterparties and third parties being unwilling to deal with the Investment Manager and by extension the Company. This could have an adverse impact on the ability of the Company to successfully pursue its Investment Policy. Please also refer to the potential for environmental claims as outlined under Environmental and Social Policies below. The Risks and Risk Management Policies are detailed in note 23 to the financial statements. Board Diversity The Company's policy on diversity is set out on page 17. The Board comprises five non-executive directors all of whom are male. Summary biographical details of the Directors are set out on page 14. The Company has no employees. Environmental and Social Policies The Group assumes all property ownership rights and liabilities relating to its acquired properties and could face substantial risk of loss from environmental claims based on environmental problems associated with such property, as well as from safety issues and third party liability risks. Despite due diligence, environmental liabilities in relation to properties in which the Group invests may not be ascertainable or fully ascertained prior to acquisition and the Group may therefore be exposed to clean-up and other remedial costs. The cost of any required remedy and the owner's liability for such remediation work in relation to any affected property may not be limited under the applicable environmental laws and could exceed the value of the property and/or the aggregate assets of the property owning subsidiary which holds the affected property. Furthermore, the presence of hazardous substances or the failure properly to remedy contamination from such substances may adversely affect the Group's ability to sell the relevant property and may also affect the Group's ability to borrow using the affected property as collateral. The Company does not have a human rights policy, although the Investment Manager applies the United Nations Principles for Responsible Investment. This Strategic Report was approved by the Board on 26 November 2014 R&H Fund Services (Jersey) Limited Company Secretary . PROPERTY PORTFOLIO INFORMATION INVESTMENT PROPERTIES at 31 March 2014 PROPERTY VALUE % OF COUNTRY £ MILLION PORTFOLIO Le Directoire, St Cloud France 31.83 26.6 Schickardstrasse 30, Böblingen Germany 16.12 13.5 11 Old Jewry, London EC2 UK 13.70 11.4 St Michel Sur Orge, Ile de France France 10.58 8.8 Offices, Priory Business Park, Bedford* UK 7.60 6.3 135-139 Rue Colonel Bourg, Brussels Belgium 5.83 4.9 Walworth Industrial Estate, Andover UK 5.38 4.5 Forum One, Station Road, Theale UK 5.05 4.2 Combs la Ville, Ile de France* France 4.51 3.8 Le Verdun, Gentilly* France 4.05 3.4 Chittening Industrial Estate, Avonmouth UK 3.62 3.0 Can Estella Industrial Estate, Barcelona Spain 3.47 2.9 Armstrong Road, Basingstoke UK 3.06 2.6 Grovebury Road, Leighton Buzzard* UK 3.00 2.5 Chalfon Court, Amersham UK 1.21 1.0 Webner Industrial Estate, Wolverhampton UK 0.77 0.6 119.76 100.0 Investment properties are analysed after deduction of obligations under finance leases of £7.6 million. * Properties sold or contracted to be sold since the year end. LEASE EXPIRY PROFILE 2014 2013 ANNUAL % OF ANNUAL % OF INCOME ANNUAL INCOME ANNUAL PERIOD OF LEASE £'000 INCOME £'000 INCOME 0-3 yrs 8,135 69.0 10,854 63.0 3-7 yrs 3,112 26.0 4,641 27.0 7-10 yrs 340 3.0 1,094 6.4 10-15 yrs 0 0.0 536 3.1 15-20 yrs 278 2.0 93 0.5 > 20 yrs 1 0.0 1 0.0 CURRENT ANNUAL INCOME FROM PROPERTIES 11,866 100.0 17,219 100.0 Annual income is derived from leases in place at 31 March 2014 and so will differ from total annual income received by the Group for the year ended 31 March 2014. SECTOR WEIGHTINGS OF PORTFOLIO BY GEOGRAPHIC AREA AS AT 31 MARCH 2014 % OF PORTFOLIO SECTOR UK FRANCE BELGIUM SPAIN GERMANY TOTAL Industrial 13.21 12.60 - 2.90 - 28.71 Offices 23.01 29.95 4.87 - 13.46 71.29 Total 36.22 42.55 4.87 2.90 13.46 100.00 AS AT 31 MARCH 2013 % OF PORTFOLIO SECTOR UK FRANCE BELGIUM SPAIN GERMANY TOTAL Industrial 28.40 12.10 - 2.00 - 42.50 Offices 10.80 29.80 7.30 - 9.60 57.50 Total 39.20 41.90 7.30 2.00 9.60 100.00 . DIRECTORS' RESPONSIBILITIES STATEMENT in respect of the preparation of the annual financial report The Directors are responsible for preparing the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare group financial statements in accordance with International Financial Reporting Standards (`IFRS') as adopted by the European Union. The financial statements are required by law to give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period. International Accounting Standard 1 requires that financial statements present fairly for each financial period the Group's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's `Framework for the preparation and presentation of financial statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRS. However, directors are also required to: • properly select and apply accounting policies; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable information; • provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and • make an assessment of the Company's ability to continue as a going concern. The Directors, to the best of their knowledge, state that: • the financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and results of the Group; • this annual report includes a fair review of the development and performance of the business and the position of the Group together with a description of the principal risks and uncertainties that it faces; and • they consider that this annual financial report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Group, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Signed on behalf of the Board of Directors Richard Barnes Chairman 27 November 2014 . CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2014 2014 2013 REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL NOTES £'000 £'000 £'000 £'000 £'000 £'000 Income Rental income 14,934 - 14,934 17,634 - 17,634 Service charge income 3,779 - 3,779 4,018 - 4,018 Interest receivable 2 16 - 16 707 - 707 and other income Realised gains on - - - - 183 183 swaps Unrealised gain on - 333 333 - 289 289 swaps Losses on investment properties Unrealised loss on - (9,914) (9,914) - (9,200) (9,200) revaluation of properties Lease incentive - (187) (187) - (177) (177) Realised loss on - (280) (280) - - - disposal of properties Total income 18,729 (10,048) 8,681 22,359 (8,905) 13,454 Expenses Management fees (903) (124) (1,027) (930) (127) (1,057) Property expenses (7,381) - (7,381) (7,033) - (7,033) Professional fees (1,719) - (1,719) (2,258) - (2,258) Goodwill impairment - - - - (5,897) (5,897) Total expenses (10,003) (124) (10,127) (10,221) (6,024) (16,245) Profit/(loss) before 3 8,726 (10,172) (1,446) 12,138 (14,929) (2,791) finance costs and tax Finance costs (7,653) (1,044) (8,697) (7,617) (1,040) (8,657) Profit/(loss) before 1,073 (11,216) (10,143) 4,521 (15,969) (11,448) tax Tax (charge)/credit (602) 2,889 2,287 (69) 543 474 Profit/(loss) for the 471 (8,327) (7,856) 4,452 (15,426) (10,974) year attributable to equity shareholders Other comprehensive income/(expenses) Items that will not be reclassified subsequently to profit or loss Exchange differences (1,306) (89) on translating foreign operations Items that may be reclassified subsequently to profit or loss Unrealised gain on 1,807 - revaluation of cross currency swaps Unrealised gain on 4,670 1,418 revaluation of interest rate swaps 6,477 1,329 Total comprehensive (2,685) (9,645) expenses Loss per ordinary share - basic and (5.1)p (7.2)p diluted The total column of this statement represents the Group's consolidated statement of comprehensive income. The supplementary revenue and capital columns are presented for information in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. All items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year. The accompanying notes are an integral part of these financial statements. . CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2014 STATED CAPITAL OTHER TRANSLATION CAPITAL REVENUE RESERVE RESERVE RESERVE RESERVE RESERVE TOTAL £'000 £'000 £'000 £'000 £'000 £'000 Balance at 31 March 101,368 (6,088) 1,855 (184,449) 61,971 (25,343) 2012 (Loss)/profit for the - - - (15,426) 4,452 (10,974) year Other comprehensive income: Exchange differences - - (89) - - (89) on translating foreign operations Unrealised gain on - 1,418 - - - 1,418 revaluation of interest rate swaps Balance at 31 March 101,368 (4,670) 1,766 (199,874) 66,422 (34,988) 2013 Loss for the year - - - (8,327) 471 (7,856) Other comprehensive income: Exchange differences - - (1,306) - - (1,306) on translating foreign operations Unrealised gain on - - 1,807 - - 1,807 revaluation of cross currency swaps Unrealised gain on - 4,670 - - - 4,670 revaluation of interest rate swaps Balance at 31 March 101,368 - 2,267 (208,202) 66,893 (37,674) 2014 The accompanying notes are an integral part of these financial statements. . CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 MARCH 2014 2014 2013 NOTES £'000 £'000 Non-current assets Investment properties 108,221 191,028 108,221 191,028 Current assets Trade and other receivables 3,187 5,744 Cash and cash equivalents 24,190 11,198 27,377 16,942 Assets classified as held for sale 19,156 - Total assets 154,754 191,028 Current liabilities Trade and other payables (13,001) (14,058) Taxation (3,753) - Interest rate swap liabilities (1,474) (149) Currency rate swap liabilities (7,979) - Obligations under finance lease (461) (458) Bank loan (150,777) - (177,445) (14,665) Total assets less current liabilities (22,691) 176,363 Non-current liabilities Bank loan - (191,288) Other payables (1,420) (2,796) Interest rate swap liabilities - (4,521) Currency rate swap liabilities - (9,785) Obligations under finance leases (7,154) (7,142) Deferred taxation (6,409) (12,761) (14,983) (228,293) Net liabilities (37,674) (34,988) Capital and reserves Stated capital 4 101,368 101,368 Other reserve - (4,670) Translation reserve 2,267 1,766 Capital reserves (208,202) (199,874) Revenue reserves 66,893 66,422 Issued capital and reserves (37,674) (34,988) Net asset value per ordinary share 5 (24.6)p (22.9)p Approved by the Board of Directors on 27 November 2014. Richard Barnes Chairman The accompanying notes are an integral part of these financial statements. . CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2014 2014 2013 £'000 £'000 Operating activities Rent and service charges received 19,790 21,140 Bank interest received 3 5 Proceeds on swap disposal - (825) Bank loan interest paid (8,357) (8,656) Operating expense payments (10,921) (11,423) Tax paid (134) (128) Net cash from operating activities 381 113 Investing activities Capital expenditures and incentives (1,080) (1,473) Sale of investment properties 53,164 - Net cash from/(used in) investing activities 52,084 (1,473) Financing activities Loan facility fee (324) - Repayment of loan (39,172) (1,597) Net cash used in financing activities (39,496) (1,597) Increase/(decrease) in cash and cash equivalents 12,969 (2,957) Cash and cash equivalents at beginning of year 11,198 14,004 Effect of foreign exchange changes 23 151 Cash and cash equivalents at end of year 24,190 11,198 . NOTES TO THE FINANCIAL STATEMENTS 1. Accounting policies A summary of the principal accounting policies, all of which have been applied consistently throughout this and the previous year, is set out below. (a) Going Concern It was announced on 28 July 2014 that the Company would seek purchasers for all the Group's remaining property assets. Since that date the Company has agreed arrangements with its lenders for the extension of the loan facility to 31 December 2014 and the marketing and proposed sale of investment properties, following which the Directors intend to begin the winding up of the Group companies. Given these proposals for the effective termination of the Company's business, the Directors do not consider it appropriate to treat the Company as a going concern and the accounts have been prepared on a basis other than that of a going concern. The financial statements do not include any provision for the future costs of winding up the group companies except to the extent that they were committed at the end of the reporting period. (b) Basis of Accounting The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (`IFRS') as adopted for use in the European Union, which comprise standards and interpretations approved by the International Accounting Standards Board (`IASB'), and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee (`IASC') that remain in effect, and were subsequently endorsed by the European Union. The financial statements have been prepared on a basis other than that of a going concern. Where presentational guidance set out in the Statement of Recommended Practice (`SORP') for investment trusts issued by the Association of Investment Companies (`AIC') in January 2009 is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that period, or in the period of the revision and future periods if the revision affects both current and future periods. In applying the Group's accounting policies, the Directors make key judgements and assumptions; the key sources of estimation and uncertainty are in the following areas: Property valuations In determining the fair value of investment properties under IAS 40 at fair value, there is a degree of uncertainty and judgement involved. The Group uses external professional valuers to determine the relevant amounts. The valuers' opinion is that, with market conditions which currently prevail, there is likely to be a greater than usual degree of uncertainty in respect of valuations. Until the number and consistency of comparable transactions increase, this situation is likely to remain. The Directors and the company's external valuers have also given consideration to the valuations in light of the basis of preparation of the financial statements and the realisable values of individual assets at the reporting date. Classification of leases In determining whether leases and related properties represent operating or finance leases, consideration is given to whether the tenant or landlord bears the risks and rewards of ownership. Non-current assets held for sale A non-current asset is transferred to assets held for sale when it is expected that the carrying amount will be recovered principally through sale rather than continuing use. For this to be the case, the asset or disposal group must be available for immediate sale in its present condition subject only to terms that are usual and customary to sales of such property and its sale must be highly probable. The following criteria must be met for a highly probable sale: • Available for immediate sale in its present condition; • Management committed to a plan to sell; • Active program to locate the buyer and complete the plan must be initiated; • The property must be actively marketed for sale at a price that is reasonable in relation to its current fair value; • The sale should be expected to qualify for recognition as a completed; and • Sale within one year from the date of classification. Non-current assets and disposal groups classified as held for sale are measured at fair value in accordance with the relevant IFRS. The properties classified as held for sale are those that were being marketed for sale at the period end. The Directors assessed the sale of these properties as highly probable as at the reporting date. As the result the properties were classified as assets held for sale and valued at fair value or net realisable value or net realisable value, being the expected selling price, as per offers received. Valuation of derivatives All derivatives are measured at fair value. Fair values of the Group's derivatives are determined by reference to observable market prices and so valued using quoted prices obtained from financial institutions. The pricing methodology does not entail material subjectivity because the methodologies utilised do not include significant judgement and unobservable inputs but actively quoted prices. The ultimate realisable value and fair value at any period end date will fluctuate depending upon market movements principally in interest rates and foreign exchange rates. The ultimate realisable value at the value date of the derivative contracts may materially differ from the fair value at the period end. Details of the fair value estimation for derivatives have been provided in notes 1(i) and 23 to these financial statements. (c) Principal Activity The principal activity of the Company and its subsidiaries (together the `Group') was investment in investment properties and is now the realisation of the investments held. (d) Basis of Consolidation The consolidated financial statements include the financial statements of the Company and its subsidiary undertakings made up to Statement of Financial Position (SoFP) date. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. (e) Segmental Reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that is subject to risks and returns which are different from those segments operating in other economic environments. 2. Interest receivable and other income YEAR YEAR ENDED ENDED 31 MARCH 31 MARCH 2014 2013 £'000 £'000 Interest receivable 3 5 Other income 13 702 16 707 3. Profit/(loss) before finance costs and tax Profit/(loss) before finance costs and tax is stated after charging: YEAR ENDED YEAR ENDED 31 MARCH 2014 31 MARCH 2013 REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL £'000 £'000 £'000 £'000 £'000 £'000 Directors' fees 123 - 123 125 - 125 Fees payable to the Company's 92 - 92 92 - 92 Auditor for the audit of the financial statements - Current period Fees payable to the Company's 116 - 116 111 - 111 Auditor for the audit of the Company's subsidiaries pursuant to legislation - Current period Total audit fees - Current 208 - 208 203 - 203 period Other fees payable to the Company's Auditor: Tax services 80 - 80 67 - 67 Corporate finance services - - - 18 - 18 Total non-audit fees 80 - 80 85 - 85 4. Stated capital 2014 2013 £'000 £'000 Authorised: 153,000,000 ordinary shares of no par value - - Allotted, called-up and fully paid: 153,000,000 ordinary shares of no par value 101,368 101,368 5. Net asset value per ordinary share (a) The net asset value per ordinary share and the net asset values attributable at the year end calculated in accordance with the Articles of Association were as follows: 2014 2013 NET ASSET NET ASSETS NET ASSET NET ASSETS VALUE ATTRIBUTABLE VALUE ATTRIBUTABLE £'000 £'000 Ordinary shares (24.6)p (37,674) (22.9)p (34,988) Net asset value per ordinary share is based on net assets at the year end and 153,000,000 ordinary shares, being the number of ordinary shares in issue at the year end. (b) Reconciliation of consolidated NAV per share to adjusted NAV: 2014 2013 PENCE PENCE PER SHARE £'000 PER SHARE £'000 Consolidated NAV per accounts (24.6) (37,674) (22.9) (34,988) Adjustments: Deferred tax liability 4.2 6,409 8.3 12,761 Interest Rate Swaps 0.9 1,474 3.1 4,670 Adjusted NAV (19.5)p (29,791) (11.5)p (17,557) The adjusted NAV is per the European Public Real Estate Association (`EPRA') measure, published in August 2011. The EPRA NAV per share excludes the fair value adjustments for debt and interest rate derivatives, deferred taxation on revaluations, capital allowances and goodwill. 6. Related party transactions No director has an interest in any transactions which are or were unusual in their nature or significant to the nature of the Group. The Directors of the Group received fees for their services. Further details are provided in the Report of the Directors. On 31 March 2008, the Company entered into an agreement with Invesco Limited (`Invesco'), the parent company of the Investment Manager, under which Invesco agreed to provide a credit facility of up to £10 million at 8% per annum. The facility agreement was amended on 31 March 2011, extending the termination date to 28 September 2014. No further interest will accrue on amounts outstanding and no further draw downs are available. At the year end £2 million had been drawn down and £0.3 million of interest was accrued (2013: £2 million drawn down and £0.3 million accrued). On 17 June 2013 the Company's Luxembourg subsidiaries entered into agreements with IREM, an Invesco group company, for the provision of administration and company secretarial services. Fees payable to IREM amounted in aggregate to up to £165,326 (plus VAT if applicable) to be adjusted annually by reference to inflation. As disclosed in the Report of the Directors, Mr. Angus Spencer-Nairn retired on 31 December 2009 as the Senior Partner of Rawlinson & Hunter Jersey, which owns R&H Fund Services (Jersey) Limited (`R&H'), the Company Secretary and Administrator appointed on 30 March 2007. Mr. Spencer-Nairn retired as a director of R&H on 1 January 2010. R&H were paid fees of £65,000 (2013: £ 60,000) and out of pocket expenses. 7. Subsequent Events Three of the assets classified as held for sale were sold post financial year end providing net proceeds of £13.9 million which was applied to debt reduction, and a further asset, Le Verdun has exchanged contracts to complete in December 2014 for q5.0 million. The Company also repaid £7.5 million and £12 million of bank borrowings from proceeds of sales completed prior to the reporting date. The cross currency swaps have been settled subsequent to the year end. The liability of £7.761 million owed on closing has been transferred, with the agreement of the lending bank, to the loan balance. In addition the remaining sterling interest rate swaps expired in September 2014. On 14 October 2014 the lending bank granted a three-month extension to the facility beyond 28 September 2014, and has agreed with the Company proposals for: (a) the sale of the remaining property assets by 31 December 2014; (b) a creditor standstill during the sales process; (c) provision to be made for trade and other unsecured liabilities, actual and expected, to be met; and (d) loan amounts outstanding following such provision and the repayment of the net sales proceeds to be treated as no longer owed by the Group. This would allow the Company and its subsidiaries to wind up solvently. . The audited Annual Financial Report will be posted to shareholders shortly. Copies may be obtained during normal business hours from the Company's Registered Office, Ordnance House, 31 Pier Road, St Helier, Jersey, JE4 8PW and will be available shortly from Invesco Perpetual on the following website: www.invescoperpetual.co.uk/investmenttrusts The Annual General Meeting will be held on 24 February 2015 at 12 noon at Ordnance House, 31 Pier Road, St Helier, Jersey, JE4 8PW. By Order of the Board R&H Fund Services (Jersey) Limited Company Secretary 18 July 2013 Enquiries to: Invesco Asset Management Limited Angus Pottinger 020 3753 1000 Rory Morrison, 020 7543 3581
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